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Settling on funding solutions for expedited grid infrastructure set as a Just Energy Transition Investment Plan priority

Lineworkers work on a high-voltage powerline

Lineworkers work on a high-voltage powerline

Photo by Creamer Media

27th February 2024

By: Terence Creamer

Creamer Media Editor

     

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Finalising funding solutions for the expedited expansion of South Africa’s electricity transmission grid has been identified as a key priority for the Just Energy Transition (JET) project management unit (PMU), which is located within the Presidency.

The unit is overseeing the implementation of the country’s JET Investment Plan (JET-IP), which was approved in 2022 with the goal of stimulating R1.5-trillion (about $80-billion) in clean electricity, new energy vehicles and green-hydrogen investments, while also supporting workers and communities whose lives and livelihoods will be made vulnerable by the transition.

The electricity sector investments under the plan are estimated at R712-billion, including transmission and distribution investments of more than R140-billion between 2023 and 2027.

The JET-IP has received grant and concessional-loan pledges worth $11.6-billion from several developed countries. However, there is growing criticism over the lack of visible projects, with most of the concessional debt having flowed into the general fiscus in the form of policy loans and the bulk of the grant funding approvals having been made in favour of consultants rather than communities.

JET PMU head Joanne Yawitch reports that transmission projects to unlock new renewables capacity have been identified as an urgent area for JET-IP investment.

Both private investment and concessional loans to Eskom are being discussed and various off-balance-sheet solutions have been considered for grid-related investments together with Electricity Minister Kgosientsho Ramokgopa, Eskom, the National Treasury and other partners.

One of the conditions of the R254-billion debt-relief package granted to Eskom in 2023 states that the utility is not allowed to raise new debt funding unless it applies for an exemption from the Finance Minister to do so.

To date no such application has been made, but Yawitch reports that moves are under way to ensure that Eskom is able to access the concessional finance that has been pledged in support of the JET-IP, initially by the European Union, France, Germany, the UK and the US in 2021.

The Netherlands and Demark have subsequently joined the founding International Partners Group (IPG), while Canada, Spain and Switzerland indicated their support for South Africa’s JET-IP framework, without joining the IPG.

It has been concluded that Eskom’s balance sheet, as well as that of the emerging National Transmission Company South Africa (NTCSA), would be insufficient to build new grid infrastructure at a pace that was fully aligned with the opportunity to add much-needed new renewables generation capacity.

The Presidency’s Rudi Dicks, who heads the project management office that oversees the JET PMU, reports that his office is tracking a pipeline of some 12.6 GW of new renewables capacity that will be seeking to connect to the grid in the coming three years over and above what could be procured under the public procurement rounds.

Government is, thus, keen for the grid investment to be fast-tracked when compared with Eskom’s prevailing Transmission Development Plan, which Dicks says will require the building of at least 1 500 km of new powerlines yearly to meet the goal of adding 14 000 km to the network by 2032.

“Therefore, Cabinet has made a decision that it’s going to be important to think of how we partner with the private sector using various forms of private sector participation in expanding and growing the transmission network.”

Ramokgopa has indicated separately that government is seeking a “EPC plus F” concept, involving the engineering, procurement, construction plus financing of new transmission infrastructure.

The Minister has also stated that a transmission procurement agency will be established and could be located within either the Development Bank of Southern Africa or the Industrial Development Corporation. However, discussions still must be concluded with the new NTCSA board on the financial and institutional models to be implemented.

In parallel, the JET PMU is also prioritising five other initiatives for the coming year, including:

  • Securing funding approvals by October under the Accelerated Coal Transition Investment Plan (ACT-IP) for repowering, repurposing and decommissioning, as well as community development projects at Camden, Hendrina and Grootvlei;
  • The operationalisation of the JET Funding Platform to facilitate matchmaking between grant funders and beneficiaries for the remaining portion of the $756-million in grant funding not yet disbursed;
  • Securing agencies or departments by April to lead the consultation and implementation of JET projects in the portfolio dealing with new energy vehicles, green hydrogen, skills development, municipal upliftment and support for just energy transition initiatives in the coal-reliant Mpumalanga province;
  • Expediting funding for investment-ready projects across all the portfolio areas; and
  • Setting up systems for monitoring, evaluation and learning.

Yawitch has expressed confidence that Eskom will be ready to present its plans to the Climate Investment Fund for accessing the ACT-IP, despite ongoing discussions about delaying the coal power station decommissioning, owing to the country’s ongoing loadshedding crisis.

She stresses that the country is currently within the carbon-emission range it outlined in its Nationally Determined Contribution (NDC) and should remain within that range to 2030 “whether or not we delay decommissioning”.

“If we delay well into the 2030s, we will have a problem in meeting our NDC commitments,” she admits, while adding that South Africa is aiming to use the international finance “in doing more than we would have been able to by ourselves”.

Dicks says the funding partners have been kept fully informed about South Africa’s electricity crisis and the potential implications for the decommissioning of coal and insists there is sympathy for being “pragmatic in the context of a shortage of generation capacity”.

Yawitch acknowledges criticism that most of the grant funding has, to date, been directed towards technical-development consultants rather than beneficiary communities, but attributes this to South Africa’s underdeveloped pipeline of just-transition projects.

Nevertheless, she says it is crucial that the balance of the grants be used to support affected communities and workers by creating alternative livelihoods, especially in Mpumalanga.

 

Edited by Creamer Media Reporter

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